Short-seller knife twist for YouTube fundie

Activist short-seller Muddy Waters is shorting Burford Capital, YouTube fundie Neil Woodford's second largest holding in his embattled fund.

Burford Capital is a lawsuit financier; Muddy Waters says it is taking a short position on Burford because the company has been "egregiously" misrepresenting its returns.

Burford is Woodford's second largest holding in its suspended Woodford Equity Income Fund - the suspension of which famously prompted Woodford to issue a sombre YouTube apology.

Following the short, Burford's share price tumbled by 65%.

Woodford, and his protege Mark Barnett, get a special mention in the Muddy Waters report explaining its position.

Woodford previously ran the Invesco Income fund and Invesco High Income fund that Barnett now runs, after Woodford left to set up his own namesake business.

The Muddy Waters report argued that net returns for Burford have relied on a very small number of cases, with just four cases producing 66% of net realised gains between 2012 and 2019.

One of those four was actually a loss trial but was bailed out by Burford's largest shareholder - Invesco.

Muddy Waters claimed investors were given the impression that Burford produced meaningful returns across its portfolio of cases when this was far from the case.

The case of Napo Pharmaceuticals v. Salix Pharmaceuticals was highlighted by the short-seller as a particularly egregious case of "accounting sleight of hand".

The report said the case: "Should make Burford investors want to take a shower."

Burford's client was Napo, it categorised it as a "concluded investment" in 2013 but the case did not reach a verdict until 2014.

Burford reported a positive return on invested capital of over 100% despite the case being a complete loss for Napo.

Invesco bailed out Burford following the case - somehow turning the loss at trial into a 195% return.

Muddy Waters said: "Napo is a stranger-than-fiction example of manipulating performance and profit metrics."

"Not only do we view [Burford's ] management as having acted highly unethically in this instance, but we also see Invesco fund manager Mark Barnett as having been equally complicit in ways reminiscent of some of the highly aggressive marking value techniques he and Neil Woodford have employed together."

Woodford's fund was the second largest holder in Burford, after Invesco, at the time. Muddy Waters said Woodford was responsible for Invesco's initial investment in Burford.

Meanwhile in Australia, dispute resolution financier IMF Bentham was forced to comment on the share price movement of its rival Burford.

IMF Bentham chief executive Andrew Saker said: "There are fundamental differences between IMF Bentham and other funders. Our investors understand and value this and our investor base now includes some of the largest, most sophisticated institutional investors in the world."

Read more: Muddy WatersBurford CapitalIMF BenthamNeil WoodfordMark BarnettAndrew SakerInvesco High IncomeNapo PharmaceuticalsSalix PharmaceuticalsWoodford Equity Income Fund
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